1. 1Economist: Daniël Karunanamage, Economist | Tel: +44 20 7803 1489 | e-mail: dkarunanamage@oxfordeconomics.com
30 Mar
2015
Dominican Republic
Highlights
 We estimate that GDP surged by 7% in 2014 helped
by strong performances from tourism, mining and
construction as well as base effects, and making the
Dominican Republic the best performing Caribbean
economy for the second year in a row. We forecast
GDP growth of a still decent 4.4% this year, edging
up to 4.5% in 2016. Growth is set to improve in both
the US and the Eurozone, which are the main
sources of remittances for the Dominican Republic. In
addition, tourism flows have started the year strongly
after arrivals increased by 9.4% to 5.7 million in 2014,
the strongest performance for more than a decade.
 The government has taken advantage of the
favourable economic climate to improve financial
stability. Earlier this year, it sold $2.5 billion of bonds,
issuing $1 billion in notes which mature in 2025 and
$1.5 billion due in 2045. This was the first sale since
the country was upgraded by Fitch to B+.
 These funds were used to pay off almost all of the
debt owed to Venezuela – albeit with the help of a
discount – for several years of oil imports. The debt
was accumulated under the PetroCaribe agreement,
which allows Caribbean and Central American
countries to pay off their oil bill in instalments at an
interest rate of 1% over 25 years. This is expected to
shave some 3.3% of GDP off government debt.
 We expect goods exports to have increased by 6.0%
in 2014 and 5.0% in 2015, with the Dominican
Republic set to increase its sales to Japan and to the
Puerto Rican market. However, in lieu of the
proposed improvement in US-Cuba relations, the
biggest threat to the external sector might come from
cigar exports.
 Inflation averaged 3% in 2014, below the central
bank’s target for the year of 4.5% +/-1%. Data so far
in 2015 show inflation continuing to decline, reaching
just 1.0% in February, driven largely by falling oil
prices. Nonetheless, the central bank chose to
maintain policy interest rates at 6.25% at its February
meeting, judging that inflation will converge back
towards its target over the medium term. We estimate
that inflation will be 3.2 % in 2015, just within this
year’s target range of 3-5%.
 According to a recent poll, some 76% of Dominicans
are in favour of President Danilo Medina serving a
second term, having presided over much improved
economic performance compared to his predecessor.
The next elections are scheduled for May 2016.
2013 2014 2015 2016 2017 2018
Real GDP growth (% year) 4.1 7.0 4.4 4.5 4.4 4.0
CPI inflation (%) 4.9 3.2 3.2 3.3 3.9 3.8
Exports of goods ($ bn) 9.50 10.07 10.58 11.11 11.66 12.24
Exports of services ($ bn) 6.55 7.15 7.75 8.38 9.02 9.69
Imports of goods ($ bn) 16.81 17.32 17.67 18.73 19.97 21.37
Imports of services ($ bn) 2.95 3.03 3.25 3.56 3.88 4.21
Exports of goods (% year) 6.4 6.0 5.0 5.0 5.0 5.0
Imports of goods (% year) -4.9 3.0 2.0 6.0 6.7 7.0
Current account ($ bn) -2.52 -2.15 -1.48 -1.36 -1.27 -1.26
Current account balance (% of GDP) -4.1 -3.3 -2.2 -1.9 -1.7 -1.6
Exchange rate per USD (year average) 41.8 43.6 44.6 45.7 46.8 48.0
External debt total ($bn) 23.83 25.47 29.08 32.92 36.98 41.26
Government balance (% of GDP) -2.7 -2.4 -2.5 -2.9 -2.8 -2.8
Population (millions) 10.4 10.5 10.7 10.8 10.9 11.0
Nominal GDP ($bn) 61.20 64.89 68.33 71.96 76.18 80.23
GDP per capita ($ current prices) 5,886 6,165 6,414 6,682 6,998 7,293
Forecast for Dominican Republic
(Annual percentage changes unless specified)
Country Economic Forecast

2. 2Economist: Daniël Karunanamage, Economist | Tel: +44 20 7803 1489 | e-mail: dkarunanamage@oxfordeconomics.com
30 Mar
2015
Forecast Overview
GDP growth to settle after bumper 2014
reading
Latest figures show that Q3 2014 growth slowed to 6.8%
y/y after averaging 8.1% in H1. Part of the weakening
was due to the fading of base effects which pushed
growth to exceptional levels earlier in the year – and this
will drive a sharp slowdown in headline GDP growth this
year to 4.4%. However, in underlying terms, activity will
have remained solid as evidenced by continued decent
readings for short-term indicators including broad
monetary growth. The key factors driving our forecast
include:
 A stronger US economy should support domestic
consumption – we expect the US dollar to appreciate
to about US$ 1 per 45 DOP. Due to this we estimate
that remittances, which make up approximately 7% of
GDP, will grow by 6.5% in 2015. This in turn will boost
household spending by 3.8% in 2015, the strongest in
four years.
 Healthier public finances provide a more stable
macro background – the Dominican Republic has
paid off 98% of a $4.1 billion debt – albeit helped by a
50% discount – owed to Venezuela for oil shipments
with funds raised through bond sales worth a large
US$2.5 billion. According to Finance Minister Simon
Lizardo this will reduce government debt by
approximately 3.3% of GDP. In the short term, we
expect the budget deficit to remain in the 2-3% of GDP
range. But in the medium to long term, better debt
management and the ability to access market funding
at reasonable rates will ensure greater macro stability
and give the government more scope to improve
infrastructure and lower the cost of doing business –
which would raise potential output.
 Significant tourism growth – for the second year
running the Dominican Republic was the most popular
Caribbean destination last year. It attracted a record
number of 5.7 million tourists, representing a 9.4%
increase from 2013. This is estimated to have brought
in revenues exceeding US$5.6 billion during 2014. In
addition, tourism flows have started off the year
strongly, with arrivals up 8% y/y in January, implying
upside risk to our forecast growth of 3.3% in 2015. We
expect stronger growth of 6.5% in 2016 due to the
Caribbean Series baseball tournament which will be
held in the Dominican Republic.
-9
-6
-3
0
3
6
9
12
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Source: Oxford Economics / World Bank
% year
Dominican
Republic
Dominican Republic: Real GDP growth
F'cast
Western
Hemisphere
-12
-9
-6
-3
0
3
6
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Source: Oxford Economics
US$ bn
% of GDP
(RHS)
US$ bn
(LHS)
Dominican Republic: Current account balance
% of GDP
F'cast
-8
-6
-4
-2
0
2
4
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Source: Oxford Economics
US$ bn
% of GDP
(RHS)
US$ bn
(LHS)
Dominican Republic: Government balance
% of GDP
F'cast
Dominican Republic

3. 3Economist: Daniël Karunanamage, Economist | Tel: +44 20 7803 1489 | e-mail: dkarunanamage@oxfordeconomics.com
30 Mar
2015
 Much improved balance of payments – we expect
a continued narrowing in the current account deficit
this year, given ongoing improvements in the external
climate. According to officials, agricultural exports
increased by 8% y/y in 2014 and by 5% in the first
two months of 2015. We expect goods exports to
increase 6% in 2015, due partly to the Dominican
Republic expanding its agricultural produce sales to
Japan and Puerto Rico. There are, however, some
potential risks to the country’s $500 million cigar
export industry. If relations between the US and Cuba
improve and the US removes the trade embargo, it
could affect the Dominican Republic’s status as the
world’s number one cigar producer.
Overall, we estimate the current account deficit will
narrow from 3.3% of GDP in 2014 to 2.2% in 2015.
Moreover, on top of the encouraging domestic
economic outlook, foreign firms are increasingly
being attracted by opportunities for further expansion
in the domestic tourism and mining sectors, which
bodes well for FDI.
Macro stability should bring results…
Higher output of commodities and stronger external
demand should support medium-term growth of 4% or
more, provided the government continues with its key
reforms. Macroeconomic stability provides a solid base
for business confidence. The central bank is targeting
inflation of 3.0-5.0% in 2015 and we expect inflation to
remain moderate, allowing scope for monetary easing if
activity weakens unexpectedly this year.
…provided reforms are pursued as well
 The Republic’s solid recent growth performance has
been accompanied by a steady increase in foreign
direct investment inflows, which according to
UNCATD data, reached $3.1 billion in 2012.
However, FDI inflows fell to $2.0 in 2013, bucking the
improving regional trend and highlighting the need for
reforms that address structural challenges.
 The cost of doing business needs to be lowered –
the Dominican Republic was ranked 101st in the
world in terms of competitiveness in 2014/15
according to the World Economic Forum, with a score
of 3.82 out of 7 (7 is the highest), little changed from
2013/14. The most problematic factor for doing
business was seen as tax rates. However those citing
corruption as a factor almost halved to 10.4%,
compared to almost 20% a year earlier.
0
5
10
15
20
25
30
35
40
45
50
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Source: Oxford Economics / Haver Analytics
% year
Dominican Republic: Inflation
F'cast
Western
Hemisphere
Dominican
Republic
0
3
6
9
12
15
18
21
1970 1976 1982 1988 1994 2000 2006 2012
US = 100
Source: Oxford Economics / World Bank
Dominican Republic: GDP per capita* (US$)
Dominican
Republic
Western
Hemisphere
All low & middle
income economies
*calculatedusing market exchange rates
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2013
Dominican Republic Western Hemisphere Emergers$ PPP
Source: Oxford Economics / IMF
Dominican Republic: GDP per capita
Dominican Republic

4. 4Economist: Daniël Karunanamage, Economist | Tel: +44 20 7803 1489 | e-mail: dkarunanamage@oxfordeconomics.com
30 Mar
2015
Background
The Dominican Republic is a Spanish-speaking country located on the eastern two-thirds of the island of
Hispaniola, the western third being occupied by Haiti. Until the end of the 1980s, the economy was rather
unsophisticated and heavily reliant on export crops such as sugar, coffee and cocoa beans. In the 1990s the
country sought to attract large FDI flows through the establishment of Free-Trade Zones (FTZs), and to boost
tourism resulting in growth increasing at an average of 6.0% during the 1991-2002 period. In the 1990s it also made
some progress in reducing high income inequality. This progress was set back by a banking crisis in 2003, which
resulted in a significant recession and a sharp increase of public debt as the government followed an expansionary
fiscal policy. However, in 2004, Leonel Fernández, the architect of the 1990’s boom, returned to power. He boosted
revenues by raising VAT, and the country signed an agreement with the IMF. The improved economic policy-
making and favourable external conditions underpinned growth of 10.7% in 2006 and 8.5% in 2007. The agreement
with the IMF expired in January 2008 and was replaced by an economic monitoring programme before a new 28-
month standby facility for US$1.7bn was agreed in November 2009.
President Fernández was re-elected to serve a third term in May 2008 as a result of his success in reviving the
economy. His PLD party maintained its parliamentary majority at the mid-term elections in May 2010. In May 2012,
the constitution meant Fernández was barred from standing for another term. His colleague from the PLD, Danilo
Medina, was elected in a very close contest. The government’s focus over recent years has been on the economic
downturn due at first to rising oil and food prices and four tropical storms, and then to the global recession. But the
public’s attention is also focused on the government’s resolve to reduce crime, corruption and electricity shortages.
Concerns over corruption have been raised by the IMF, which has called for measures to centralise fiscal functions
and pass a new banking regulatory framework. Other long-lasting political problems are the excessive concentration
of power in the presidency, entailing high levels of discretionary spending and little accountability.
The economy is dominated by services and by export-oriented manufacturing. Tourism is a major generator of
foreign exchange (some US$4.7bn in 2012), and most manufactured exports are produced within the FTZs. Textiles
were the first sector to be established in the zones, but now a variety of exports, ranging from electronic to
pharmaceutical goods and cigar production, has taken hold. A further boost to exports should be provided by the
implementation of the free-trade agreement between Central America and the US, the so-called DR-CAFTA. This
treaty should entrench the duty-free access of Dominican goods to the US. Previously the country was relying on
the Caribbean Basin initiative, a unilateral decision by the US to open its markets, which could have been reneged
at any time. The country’s main trading partner is the US, which took over 50% of the country’s exports in 2011.
In order to maintain a high rate of growth in the medium term, the country’s industry and services will need to move
up the value-added chain. Several efforts have already been made in this respect. Tourism, which so far has
generally focused on all-inclusive resorts, intends to capture some of the top end of the market, capitalising on its
attractive capital Santo Domingo, and retain more of the revenues domestically. The country is also trying to
develop an offshore financial industry, where it plans to challenge the more established Caribbean centres by
acquiring a reputation for transparency, following all international guidelines on fighting money laundering.
The main challenges faced by the Dominican Republic are social instability – fuelled by income inequality and high
unemployment – and possible derailments to its reform programme. The labour market came under pressure
following the 2003 crisis and though the unemployment rate has declined a little, it remains very high at over 14% in
2014 (using the widest measure). Overall, the country needs to increase the effectiveness of its public spending,
reduce public debt and to continue improving its regulatory framework. The banking sector has been the subject of
new regulations, but the country needs to do more if it wants to develop its role as a significant offshore centre.
Within the Caribbean, the Dominican Republic has become an increasingly popular destination for foreign investors
in recent years. In 2012, foreign direct investment inflows were US$3.1bn; and the importance of the economy as a
destination for FDI has risen sharply in recent years.
Dominican Republic

5. 5
30 Mar
2015
Economist: Daniël Karunanamage, Economist | Tel: +44 20 7803 1439| e-mail: dkarunanamage@oxfordeconomics.com
Key Facts
Politics
Chief of state: President Danilo MEDINA
Head of government: President Danilo MEDINA
Political system: Presidential democracy
Date of next presidential election: May 2016
Date of next legislative election: May 2014
Currency: Dominican peso (DOP), floating exchange rate
Long-term economic & social development
1980 1990 2000 2013*
GDP per capita (US$) 1138 976 2770 5886
Inflation (%) 16.8 50.5 7.4 4.9
Population (mn) 5.83 7.25 8.66 10.40
Urban population (% of total) 51.3 55.2 61.8 77.1
Life expectancy (years) 63.0 68.0 70.6 73.2
Source : Oxford Economics & World Bank
Structure of GDP by output * 2013 or latest
2013 available year
Agriculture 6.1% Source : CIA Factbook
Industry 31.2% Location: Caribbean, eastern two-thirds of the island of Hispaniola,
Services 62.8% between the Caribbean Sea and the North Atlantic Ocean, east of
Source : World Bank Haiti (CIA factbook)
Long-term sovereign credit ratings & outlook Corruption perceptions index 2014
Foreign currency Local currency Score
Fitch B+ (Stable) B+ (Stable) Developed economies (average) 75.1
Moody's B1 (Stable) B1 (Stable) Emerging economies (average) 37.8
S&P B+ (Stable) B+ (Stable) Dominican Republic 32.0
Western Hemisphere 40.4
Source: Transparency International
Structural economic indicators Scoring system 100 = highly clean, 0 = highly corrupt
1990 1995 2000 2013*
Current account (US$ million) -278 -182 -1019 -2519
Trade balance (US$ million) -1058 -1391 -3742 -7369
FDI (US$ million) 133 414 953 1991
Debt service (US$ million) 239 416 529 2837
Debt service (% of exports) 12.5 7.1 5.7 16.8
External debt (% of GDP) 63.4 27.7 19.4 39.0
Oil production (000 bpd) 0 0 0 0
Oil consumption (000 bpd) 64 72 110 123
Source : Oxford Economics / World Bank / EIA
Destination of goods' exports (2013)
United States 56.0%
Haiti 14.3%
European Union (28) 6.8%
China 5.2%
Guatemala 1.9%
Source : WTO Source : WTO
Agricultural
products
10.3%
Fuels and
mining
products
12.3%
Manufactures
31.5%
Other goods
exports
7.4%
Transportation
2.9%
Travel
32.3%
Other
commercial
services
3.2%
Composition of goods & services exports,
2013
Dominican Republic